Subprime mortgages—which were blamed for sparking the last housing crisis—are reappearing, this time being dubbed “nonprime” loans. This lending option, which carries new quality standards, is growing for buyers who have damaged credit.
California-based Carrington Mortgage Services is one company expanding its nonprime loan offerings. “We believe there is actually a market today for people who want to buy nonprime loans that have been properly underwritten,” saysRick Sharga, of Carrington Mortgage Holdings, told CNBC.
Carrington Mortgage Services, which plans to manually underwrite each loan, will qualify borrowers with FICO credit scores as low as 500. The lender also will qualify borrowers who’ve had recent problems reported on their credit histories, such as a foreclosure, bankruptcy, or a history of late payments. But borrowers who are at higher risks will be required to make a bigger down payment, and the interest rate on the loan will be higher.
Other lenders also are getting into the nonprime space, including Angel Oak and Caliber Home Loans; more than 80 percent of Angel Oak loans are nonprime.
Source: “Subprime Mortgagees Make a Comeback—With a New Name and Soaring Demand,” CNBC (April 12, 2018)